On November 3rd, Mi Lei, the founding partner of Zhongke Chuangxing, released the “ESK Value Investment Responsibility Report on Hard Technology” at the Photon Industry Development and Hard Technology Achievement
Transformation Forum of the 2023 Global Hard Technology Innovation Conference.
In the report, Mi Lei pointed out, “In the golden age of hard technology, we need a new innovative investment concept to better promote technological innovation, economic growth, and social progress under the theme of ‘Chinese-style modernization’.” This new concept system is called the ESK (Economic, Social, Knowledge) value
investment system.
Different from ESG
Throughout the century-long changes in the venture capital industry, some simple and concise concepts have led to the progress and prosperity of the industry: from the 1930s to the beginning of the 21st century, value
investing represented by Graham and Buffett, with “return on value” as the investment core; from the beginning of the 21st century to the present, ESG (environment, social, and corporate governance) investment with
“focus on environment, society, and corporate governance” as the core.
Value investing and ESG investment both attempt to answer the questions posed by the times - value investing solves how to bring returns to capital, while ESG investment tells the world how to achieve “both righteousness
and profit”. However, they both have some shortcomings when facing the surging wave of hard technology.
According to the report, “In the golden age of hard technology, in addition to focusing on the return on capital market (economic value) and promoting environmental sustainability, rural revitalization, and common
prosperity (social value), investment should also focus on the creation of knowledge value.”
As the 3.0 version of the value investing system, ESK retains the core principle of value investing’s focus on economic returns, while also covering the 2.0 requirements of ESG’s focus on environmental, social, and
corporate governance. At the same time, ESK value investing also focuses on the original driving force of human civilization progress - knowledge value.
The report points out that the three major systems composed of “knowledge system, economic system, and social system” are the underlying laws that maintain the benign operation and coordinated development of human
economy and society. It is precisely based on the disruptive innovation of the three major systems that the three major values (knowledge value, economic value, and social value) naturally arise. Among them, economic
value brings wealth to humanity, social value brings happiness and power to humanity, and knowledge value is the source of both values. Focusing on knowledge innovation and creating economic returns and social wealth is
the true intention of investment.
ESK: The Extension and Innovation of Investment Philosophy in Hard Technology.
The establishment of the ESK system is based on the investment experience and thinking of Dr. Mi Lei, founding partner of Zhongke Chuangxing. In 2010, against the background of society’s relative “indifference”
to core technology, Dr. Mi Lei proposed the concept of “hard technology”. He emphasized that “if we only focus on the innovation of business models, and do not pay attention to the innovation of underlying technology,
this is not conducive to China’s economic and social progress. Especially when China is at a turning point in history, the Chinese economy will shift from factor-driven and investment-driven to innovation-driven,
and hard technology is the key to support China’s new era of economic development, and to move from following to leading.” Dr. Mi Lei believes that “hard technology” is not only “hard” in terms of high technical
barriers and originality, but also “hard” in the value it creates - hard technology investment can not only bring considerable economic returns to the capital market, but also create social value, such as promoting
sustainable development of the environment, promoting rural revitalization, and helping achieve common prosperity. In addition, hard technology is also the crystallization of human wisdom and knowledge, and the
achievement of civilization. He believes that the global economy is declining because the previous knowledge systems have been digested, and only by creating a new round of knowledge, economic and social value can we
better create a better future. Looking at human history, the values of knowledge, economy, and society are closely linked. The three are like the three sides of a triangle. Under their close connection, they form the
most stable structure, and ultimately promote the agricultural revolution, industrial revolution, information revolution, and even the ongoing intelligence revolution.
As the “Report” states, knowledge is the foundation of all technological and industrial revolutions, which are based on relevant theoretical knowledge systems and controllable experimental technologies. Knowledge is
also the source of economic and social wealth. Standing in the current boom of hard technology, the proposal of the ESK value system is necessary.
ESK is more than just an investment.
Under the guidance of the ESK value investment system, Zhongke Chuangxing has always adhered to the goals of focusing on major national and social needs, focusing on creating a better living environment for the people,
and focusing on talent development and knowledge progress. During the process of fundraising and management, we have directly or indirectly referred to and implemented the ESK value investment system, striving for both
quality and quantity in development.
The report shows that in the five major areas of information, energy, materials, life sciences, and materials, Zhongke Chuangxing has actively explored and patiently accompanied the development of over 420 hard-tech
companies, many of which have contributed to promoting technological self-reliance, green and sustainable development, and improving people’s quality of life.
In the process of exploring and summarizing the ESK value investment system, Zhongke Chuangxing has gradually developed its own value investment philosophy as a Chinese venture capital institution. For hard-tech startups,
they often need to purchase expensive production and testing equipment in the early stages of entrepreneurship. However, the huge investment may not necessarily bring high returns, but could also entail high risks. For
example, in the case of photon chips, an early-stage photon chip company needs to invest at least 50 million yuan in equipment for testing and packaging to provide samples for customers.
In order to better support the development of photonics industry companies, Zhongke Chuangxing has collaborated to build an integrated entrepreneurial ecosystem called the “Curvature Engine” hard-tech enterprise
community. This hard-tech enterprise technology space, located in Xi’an, includes “four parks and one platform”. Among them, the photon chip park and the Shaanxi Optoelectronic Pioneer Institute, which is the only
institution in China with IMEC process package, serve as professional shared technology platforms, providing advanced production environments and equipment such as shared production lines and clean workshops for photon
chip companies. This significantly shortens the product delivery cycle for enterprises and effectively reduces the threshold for entrepreneurial companies.
In addition to funding, hard-tech startups also face other transformational issues. To achieve the goal of being a champion in hard-tech, Zhongguancun Star initiated the Hard-tech Enterprise Entrepreneurship Camp in 2015,
which is the earliest entrepreneurship training camp in China that focuses on the hard-tech field. This year, Zhongguancun Star, in collaboration with the China Entrepreneur Exploration Program, led scientists and
entrepreneurs to visit leading companies in the new trillion-dollar industry and explore the core secrets of achieving super growth for future industrial companies in the next round of transformation.
In terms of knowledge value, Zhongguancun Star is also actively exploring. In 2020, Zhongguancun Star and the Torch Center of the Ministry of Science and Technology jointly researched and formed the “Hard-tech Technology
Catalog” and released the “Hard-tech Tree”. A year later, Zhongguancun Star participated in the writing of China’s first hard-tech-themed book, “Hard-tech: The Strategic Support for China’s Technological Self-reliance”,
and “Hard-tech: The Frontier of Great Power Competition”, comprehensively expounding the connotation and importance of hard-tech, pushing the important value of the “hard-tech” concept to a new level. In addition,
Zhongguancun Star has invested in and incubated more than 200 scientific entrepreneurial teams, not only promoting the transformation of scientific and technological achievements into productivity (the conversion of
knowledge value into economic value), but also helping these cutting-edge technology research and development to create more knowledge value.
Finally, at the press conference, Dr. Mi Lei stated that the “Hard-tech ESK Value Investment Responsibility Report” not only showcases Zhongguancun Star’s investment map, but also hopes that it can become a “compass”
for China’s venture capital industry, a “localized value investment path” for China’s hard-tech venture capital. He hopes that the thinking of Zhongguancun Star can inspire colleagues in venture capital, enabling
investment to promote knowledge innovation and create even more abundant wealth for the world and human civilization.
